Federal Publications Key Workplace Documents
2-7-2012
Sourcing Policy: Selected Developments and Issues
Sourcing Policy: Selected Developments and Issues
L. Elaine HalchinCongressional Research Service
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Abstract Abstract
[Excerpt] Sourcing policy refers, generally, to determining which sector—public (government) or private—will perform an agency’s function(s). Both federal employees and contractor employees have valid roles to play in performing the work of the federal government. This combined workforce is known as a blended workforce. Determining which sector will perform which functions, including determining when federal employee performance is, or should be, required can be challenging, however. Efforts to address this issue, and related questions, have been the subject of the federal government’s sourcing policy since at least the 1950s.
This report begins with a history of sourcing policy that focuses on the terms commercial and inherently governmental, and the policy of government reliance on the private sector. The following section
examines the two strains of sourcing policy: competitive sourcing and multi-sector workforce management. The juxtaposition of the Bush Administration’s competitive sourcing initiative and the Obama Administration’s multi-sector workforce management effort aids in understanding different, yet potentially complementary, facets of sourcing policy. Policy issues that may be of interest to the 112th Congress are also discussed.
Keywords Keywords
sourcing policy, government agency, public sector, private sector, competitive sourcing, multi-sector workforce management
Comments Comments
Suggested Citation Suggested Citation
Halchin, L. E. (2012). Sourcing policy: Selected developments and issues. Washington, DC: Congressional Research Service.
Sourcing Policy: Selected Developments and
Issues
L. Elaine Halchin
Specialist in American National Government
February 7, 2012
Congressional Research Service 7-5700 www.crs.gov R42341
Summary
Dating back to the 1950s, federal sourcing policy generally has focused on the premise that the government should rely on the private sector for the provision of certain goods and services. Additionally, it has centered around guidance for conducting public-private competitions to determine whether federal employees, or contractor employees, should be selected to perform certain agency functions. The Administration of President George W. Bush, in particular, emphasized subjecting eligible agency functions to public-private competitions. Branding this policy, and related guidance, as competitive sourcing, the Bush Administration included it as one component of the President’s Management Agenda.
During the Administration of President Barack Obama, another strain, or facet, of sourcing policy surfaced. Labeled multi-sector workforce management by the Administration, it posits that federal agencies might be susceptible to overreliance on contractors, which could affect the ability of agencies to maintain control over their missions and operations. OMB’s July 2009 memorandum provides guidance to agencies on how to manage their multi-sector workforces. The Office of Federal Procurement Policy’s Policy Letter 11-01—by providing a single, consistent definition of inherently governmental and guidance for identifying and managing inherently governmental functions, functions closely associated with inherently governmental functions, and critical functions—complements the Administration’s multi-sector workforce management policy. This letter was issued in September 2011.
Congressional interest in sourcing policy, generally, has been evident for some time. For example, in 1998, the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-270) was signed into law. It requires certain federal agencies to compile, and submit annually to OMB, inventories of their commercial activities, which are activities that may be performed by federal employees or a government contractor. Recent signs of interest in sourcing policy include two substantively similar but identically titled bills that were introduced during the 112th Congress. H.R. 1474 and S. 785, the Freedom From Government Competition Act, contain provisions that would expand upon existing policies designed to encourage federal government reliance on the private sector for the provision of both goods and services.
This report provides an overview of the evolution of federal sourcing policy to date and identifies the major policy issues before Congress. It is not a legislation tracking report. This report will be updated as events warrant.
Contents
Introduction... 1
Background... 3
Key Terms: Commercial and Inherently Governmental... 3
Commercial Activities... 4
Inherently Governmental Functions... 5
The Role of the Private Sector... 11
Recent Developments in the History of Sourcing Policy ... 18
Competitive Sourcing... 18
Commercial Activities Panel’s Sourcing Principles ... 21
Statutory Requirement for Agencies to Develop Insourcing Guidelines... 22
OMB Memorandum on Multi-Sector Workforce Management ... 24
Framework for Managing the Multi-Sector Workforce ... 25
Multi-Sector Workforce Pilot ... 26
Insourcing Guidance ... 26
Office of Federal Procurement Policy’s Policy Letter 11-01... 28
Policy Issues ... 29
Competitive Sourcing, Multi-Sector Workforce Management, and Insourcing ... 29
The Federal Government’s Reliance on Contractors... 31
A Typology of Government Functions ... 33
Personnel Sustainment ... 34
An Institutional Perspective ... 34
Outcomes and Data... 35
Cost Considerations... 39
Cost Analysis... 39
Are Cost Savings a Goal of Multi-Sector Workforce Management? ... 46
Resources... 47
Department of Homeland Security’s Balanced Workforce Strategy ... 48
Concluding Remarks ... 51
Tables
Table 1. Definitions of Commercial and Inherently Governmental... 6Table 2. Policy History of Governmental Reliance on the Private Sector... 11
Table 3. Selected Features of Competitive Sourcing and Multi-Sector Workforce Management ... 30
Table 4. Conceptual Elements of the Market System and the Public Policy Process ... 35
Appendixes
Appendix. Selected Sources ... 52Contacts
Introduction
Sourcing policy refers, generally, to determining which sector—public (government) or private— will perform an agency’s function(s). Both federal employees and contractor employees have valid roles to play in performing the work of the federal government. This combined workforce is known as a blended workforce.1 Determining which sector will perform which functions,
including determining when federal employee performance is, or should be, required can be challenging, however. Efforts to address this issue, and related questions, have been the subject of the federal government’s sourcing policy since at least the 1950s.
Sourcing policy is not so much a product of coordinated planning and implementation as it is an amalgamation of statutory provisions, policy letters, administrative directives,2 and guidance
issued by various presidential administrations. Sourcing policy has been at the root of contentious debates, which may complicate the somewhat murky picture. This brief overview of the report is provided to assist in navigating the subject of sourcing policy.
Sourcing policy encompasses two major strains. Delving into the history of sourcing policy is necessary for understanding the strain that emerged in the 1950s, and for providing context for the strain that emerged during President Barack Obama’s Administration. The latter strain has not necessarily displaced, or replaced, the former strain, though it might not always be clear to outside observers what actions agencies are taking, or are expected to take. The complexity might be due, at least in part, to the ad hoc fashion in which sourcing policy has evolved and the mix of government documents involved.
The strain that emerged first, with the issuance of three Bureau of the Budget (BOB) bulletins in the 1950s, emphasizes governmental reliance on the private sector for the provision of goods and services.3 An unwritten corollary of this strain of sourcing policy has been that certain functions performed by federal employees may be subjected to public-private competition. A competition
1 While acknowledging that there is “no common agreement on a definition of the multisector [or blended] workforce,”
a working group of the National Academy of Public Administration (NAPA), provides an expanded description of this term. The multi-sector workforce consists of “federal, state and local civil servants (whether full- or part-time, temporary or permanent); uniformed personnel; and contractor personnel [who] often work on different elements of program implementation, sometimes in the same workplace, but under substantially different governing laws, different systems for compensation, appointment, discipline, and termination; and different ethical standards.” (National Academy of Public Administration, Managing Federal Missions With a Multisector Workforce: Leadership for the 21st
Century,” November 16, 2005, p. 1, at https://www.acquisition.gov/comp/aap/documents/
National%20Academy%20of%20Public%20Administration%20%2012%2016%2005.pdf.) Another description says that the “the type of workplace arrangement” where “contractor personnel work alongside federal employees in the federal workspace; often performing identical functions … has become known as a ‘blended’ or ‘multisector’ workforce.” (Acquisition Advisory Panel, Report of the Acquisition Advisory Panel to the Office of Federal Procurement Policy and the United States Congress, January 2007, p. 392, at https://www.acquisition.gov/comp/aap/ finalaapreport.html.) The Obama Administration uses the term multi-sector workforce. (See “OMB Memorandum on Multi-Sector Workforce Management.”) The Government Accountability Office uses the term total workforce.(U.S. Government Accountability Office, Civilian Agencies’ Development and Implementation of Insourcing Guidelines, GAO-10-58R, October 6, 2009, p. 7, at http://www.gao.gov/new.items/d1058r.pdf.) The Department of Homeland Security uses the term balanced workforce. (See “Department of Homeland Security’s Balanced Workforce .”)
2 Chief among these is Office of Management and Budget Circular A-76, which is discussed below.
3 The Bureau of the Budget was the precursor to the Office of Management and Budget (OMB). Additional information
determines whether the incumbent workforce would continue to perform the work, or the agency would award a contract to a private company to perform the work.
Circular A-76, which was issued initially in 1966, continued this policy of governmental reliance on the private sector and provides guidance and procedures for carrying out public-private competitions. The Office of Management and Budget has published five revisions to the circular. The current circular (or revision) was released in May 2003. Generally, the term introduced by the Administration of President George W. Bush—competitive sourcing—is associated with this strain of sourcing policy.4
Throughout the history of sourcing policy, only certain functions have been eligible for public-private competitions. Beginning with the Bureau of the Budget bulletins published during the Eisenhower Administration, only agency functions identified as commercial may be subjected to public-private competitions. Any agency function designated as governmental (or, later,
inherently governmental) must be performed by federal employees.
With the continued emphasis on governmental reliance on the private sector finding expression in a “[g]overnment policy [that] has favored contracting for goods and services rather than
providing them in-house,”5 the commercial/inherently governmental dichotomy and the focus on
public-private competitions sufficed for a number of years. As the needs of the government expanded over the years, however, contracting for services grew, both in terms of the amount spent on contracts and the types of services provided by contractors. Notably, the federal government’s short-term and long-term responses to the terrorist attacks of September 11, 2001, involved a significant growth in service contracting. The federal government invaded Afghanistan and then Iraq; added a new department tasked with safeguarding the homeland; and embarked upon a raft of new initiatives and programs involving, for example, intelligence, transportation security, and cybersecurity. Determining who should do the work of the federal government became more challenging as, for example, certain practices were called into question (e.g., using companies to conduct passenger screening at airports); controversy swirled around some events that involved private security contractors (e.g., private security guards reportedly shot Iraqi civilians in 20076); and concerns surfaced that, in the rush to expand its capabilities, the federal
government was at risk of having contractor employees perform inherently governmental work. Thus, the second strain of sourcing policy that has emerged focuses on ensuring that the federal government has the best, or most appropriate, mix of federal employees and contractor
employees. The Obama Administration, through guidance issued by the Office of Management and Budget, refers to this strain as multi-sector workforce management. Unlike competitive sourcing, the multisector workforce management strain relies chiefly (though not entirely) on an expanded typology of functions and associated guidance to determine who—federal employees or contractor employees—should perform which agency functions. Additions to the existing
typology (commercial functions and inherently governmental functions) are critical functions and
functions closely associated with inherently governmental functions. According to the Obama Administration’s guidance, multi-sector workforce management was devised to ensure that
4 Any mention of President Bush or the Bush Administration in this report refers to President George W. Bush. 5 U.S. Commission on Government Procurement, Report of the Commission on Government Procurement, Volume 1,
Washington, DC, December 1972, p. 57.
6 James Glanz and Alissa J. Rubin, “Blackwater Shootings ‘Murder,’ Iraq Says,” New York Times, October 7, 2007, at
agencies’ reliance on contractors is not excessive.7 Restated, this strain focuses on ensuring that
agencies, not contractors, perform inherently governmental functions, and that agencies retain control over their mission and operations.8
This report begins with a history of sourcing policy that focuses on the terms commercial and
inherently governmental,and the policy of government reliance on the private sector. The following section examines the two strains of sourcing policy: competitive sourcing and multi-sector workforce management. The juxtaposition of the Bush Administration’s competitive sourcing initiative and the Obama Administration’s multi-sector workforce management effort aids in understanding different, yet potentially complementary, facets of sourcing policy. Policy issues that may be of interest to the 112th Congress are also discussed.
Background
Key Terms:
Commercial
and
Inherently Governmental
Familiarity with the terms commercial and inherently governmental is integral to understanding the federal government’s sourcing policy and related issues.9 A commercial activity may be performed by a contractor employee or a federal employee. An inherently governmental function may be performed only by federal employees.10 Although, at times or under certain
circumstances, other terms have been used, such as core functions, government-wide sourcing policy, generally, has relied on this dichotomy: a government function (or activity)11 is either commercial or inherently governmental.
7 Peter R. Orszag, Director, U.S. Office of Management and Budget, “Managing the Multi-Sector Workforce,” July 29,
2009, p. 1, at http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m-09-26.pdf.
8 Office of Federal Procurement Policy, “Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter
11-01, Performance of Inherently Governmental and Critical Functions,” 76 Federal Register 56227-56242, September 12, 2011, at http://www.gpo.gov/fdsys/pkg/FR-2011-09-12/pdf/2011-23165.pdf.
9 For the purposes of sourcing policy, commercial has a different meaning than commercial item, which is a term used
in government procurement generally. The definition of commercial item reads in part: A commercial item is “(1) Any item, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and—(i) Has been sold, leased, or licensed to the general public; or (2) Has been offered for sale, lease, or license to the general public....” (48 CFR § 2.101(a).)
10 “Contracts shall not be used for the performance of inherently governmental functions.” (48 CFR § 7.503(a).) 11 Historically, the words activities and functions have been treated as synonyms. That is, it has been general practice to
use the terms commercialactivities and inherentlygovernmental functions. An American Bar Association white paper attempted to clarify these terms, noting that “people who occupy positions perform functions. Activities are groups of people who perform functions; i.e., assigned duties, to achieve objectives, including supporting others—at least that is the sense in which OMB Circular A-76 uses the term ‘activity.’” (Task Force of the American Bar Association Public Contract Law Section, “Work Reserved for Performance by Federal Government Employees, OFPP Draft Policy Letter dated March 31, 2010, Issues and Challenges,” white paper, June 16, 2010, p. 4, at http://www.americanbar.org/ content/dam/aba/migrated/contract/wp061610.authcheckdam.pdf.) The Office of Federal Procurement Policy addressed this issue in the preamble accompanying its policy letter on inherently governmental and critical functions. (See “Office of Federal Procurement Policy’s Policy Letter 11-01.”) OFPP wrote that it “recognizes that the terms [function,
activity, and position] have different meanings and agrees that more careful use of these terms may help to avoid inappropriately broad generalizations regarding the characterization of work. A function, for example, often includes multiple activities, or tasks, some of which may be inherently governmental, some of which may be closely associated with inherently governmental work, and some may be neither.” (Office of Federal Procurement Policy, “Publication of the Office of Federal Procurement Policy (OFPP) Policy Letter 11-01, Performance of Inherently Governmental and (continued...)
An agency may choose to subject a commercial activity to a public-private competition. The competition is held to determine who will perform the work in the future: the incumbent workforce (usually federal employees) or the competitor (usually a contractor). Office of Management and Budget (OMB) Circular A-76 provides the policy and guidance governing public-private competitions.12
As discussed below, a description of commercial activity appeared initially in a 1955 Bureau of the Budget (BOB) bulletin and a definition was published in 1966. A written definition of
inherently governmental was first published in 1979.13
Commercial Activities
Bureau of the Budget Bulletin 55-4 may have been the first policy document that addressed the idea that a government activity may be commercial in nature. The relevant passage is as follows:
In determining whether an activity is “commercial” in nature and “could be procured … through ordinary business channels,” reference may be made to the Standard Industrial Classification Manual and to ordinary business practice with respect to procurement of services or products. The inclusion of an activity in the manual will be generally considered indicative that it may be procured commercially. There will be excluded from coverage as noncommercial, however, those functions which are a part of the normal management responsibilities of a Government agency or a private business of comparable size (such as accounting, personnel work, and the like).14
Eleven years later, the Bureau of the Budget provided a definition of commercial activity. The definition, which was included in the original Circular A-76, reads as follows:
A Government commercial or industrial activity is one which is operated and managed by an executive agency and which provides for the Government’s own use a product or service that is obtainable from a private source.15
The word industrial was dropped with the publication of the 1983 revision to Circular A-76. The current definition of commercial activity, which features the term recurring service, may be found in the 2003 version of Circular A-76.
[A commercial activity is a] recurring service that could be performed by the private sector. This recurring service is an agency requirement that is funded and controlled through a contract, fee-for-service agreement, or performance by government personnel. Commercial
(...continued)
Critical Functions,” p. 56233.) Determining the appropriate circumstances under which to use the term activity or
function is beyond the scope of this report. Hence, this report adheres to longstanding practice and uses the terms
commercial activity and inherently governmental function.
12 The circular may be found at http://www.whitehouse.gov/sites/default/files/omb/assets/about_omb/
a76_incl_tech_correction.pdf.
13 The Bureau of the Budget was the predecessor to the Office of Management and Budget.
14 U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for
Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 2.
15 U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government
activities may be found within, or throughout, organizations that perform inherently governmental activities or classified work.16
Under the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-270), agencies are required to submit inventories of their commercial activities to OMB by June 30 of each year. An agency’s inventory is to include, for each activity listed, the “number of full-time employees [FTEs] (or its equivalent)” needed for government performance.17
Inherently Governmental Functions
A definition of the term governmental function did not appear in a sourcing policy document until 1979, 24 years after the term commercial was introduced. The definition of governmental
function, which was included in the 1979 revision to Circular A-76, was as follows:
A “Governmental function” is a function which must be performed in-house due to a special relationship in executing governmental responsibilities. Such governmental functions can fall into several categories: (1) Discretionary application of Government authority…. (2)
Monetary transactions and entitlements…. (3) In-house core capabilities….18
The term commonly used today, inherently governmental function, appeared initially in the Office of Federal Procurement Policy’s (OFPP’s) Policy Letter 92-1, which was issued in September 1992. (The letter was superseded by the 2003 revision to Circular A-76.) Policy Letter 92-1 provided the following definition:
As a matter of policy, an “inherently governmental function” is a function that is so intimately related to the public interest as to mandate performance by Government employees. These functions include those activities that require either the exercise of discretion in applying Government authority or the making of value judgments in making decisions for the Government. Governmental functions normally fall into two categories: (1) the act of governing, i.e., the discretionary exercise of Government authority, and (2) monetary transactions and entitlements.19
Currently, there are three primary definitions of inherently governmental, which may be found in Circular A-76,20 48 CFR § 2.101(a),21 and Section 5(1)(A) and (B) of the FAIR Act.22 Charged
16 U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised),
May 29, 2003, p. D-2, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/ a76_incl_tech_correction.pdf.
17 Section 2(a) of P.L. 105-270. A full-time equivalent is the “staffing of Federal civilian employee positions, expressed
in terms of annual productive work hours (1,776) rather than annual available hours that includes non-productive hours (2,080 hours).” (U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised), May 29, 2003, p. D-5.)
18 U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by
the Government; Policy Revision,” April 5, 1979. (This is the March 29, 1979 revision of Circular A-76.) (Italics in original.) The full description of the third category is as follows: “(3) In-house core capabilities in the area of research, development, and testing, needed for technical analysis and evaluation and technology base management and
maintenance. However, requirements for such services beyond the core capability which has been established and justified by the agency are not considered governmental functions.” (Ibid.) (Italics in original.)
19 Office of Federal Procurement Policy, “Inherently Governmental Functions,” Policy Letter 92-1, September 23,
1992, p. 2, at http://www.whitehouse.gov/omb/procurement_policy_letter_92-01/.
20 See p. A-2 of Circular A-76, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/
with developing a single consistent definition of inherently governmental,23 however, OFPP
selected the FAIR Act definition, which it included in its 2011 policy letter on inherently governmental functions and critical functions.24 This definition reads as follows:
The term “inherently governmental function” means a function that is so intimately related to the public interest as to require performance by Federal Government employees…. The term includes activities that require either the exercise of discretion in applying Federal Government authority or the making of value judgments in making decisions for the Federal Government, including judgments relating to monetary transactions and entitlements.25
Under the Bush Administration, OMB required agencies to submit inventories of their civilian inherently governmental positions when they submitted their commercial activities inventories to OMB each year.26
Table 1 provides the definitions and descriptions of commercial and inherently governmental that have been used at various times since 1955. The current definition of commercial may be found in Circular A-76 (2003) while the current definition of inherently governmental may be found in P.L. 105-270, which is the Federal Activities Inventory Reform (FAIR) Act.
Table 1. Definitions of Commercial and Inherently Governmental
1955-Present
Document (year) Definition or Description of Commercial Activity Definition or Description of Inherently Governmental
Bulletin 55-4 (1955) “In determining whether an activity is ‘commercial’ in nature and ‘could be procured … through ordinary business channels,’ reference may be made to the Standard Industrial Classification Manual and to ordinary business practice with respect to procurement of services or products. The inclusion of an activity in the manual will be generally considered indicative that it may be procured commercially. There will be excluded from coverage as noncommercial, however, those functions which are a
No entry.
(...continued)
21 See also Subpart 7.5 of Tile 48 of the Code of Federal Regulations.
22 While certain elements of all three definitions are the same, or similar, such as the phrase intimately related to the
public interest, there is variation among other terms used in the definitions, including function and activity, employees
and personnel, and government and Federal Government. A particularly notable difference, some commentators would suggest, is that the 2003 circular mentions the exercise of substantial discretion while neither of the other two
definitions includes the modifier substantial.
23 Sec. 321 of P.L. 110-417.
24 See “Office of Federal Procurement Policy’s Policy Letter 11-01.” 25 Sec. 5(2)(A) and (B) of P.L. 105-270.
26 Sean O’Keefe, Deputy Director, U.S. Office of Management and Budget, “Year 2001 Inventory of Commercial
Activities,” memorandum M-01-16, April 3, 2001, p. 1, http://www.whitehouse.gov/sites/default/files/omb/ memoranda/m01-16.pdf.
Document (year) Definition or Description of Commercial Activity Definition or Description of Inherently Governmental
part of the normal management responsibilities of a Government agency or a private business of comparable size (such as accounting, personnel work, and the like).” Bulletin 57-7 (1957) “In determining whether an activity is
‘commercial’ in nature and ‘can be procured … through ordinary business channels,’ reference may be made to the Standard Industrial Classification Manual, to the availability of the service or product on a competitive basis, and to ordinary business practice with respect to procurement thereof. The inclusion of an activity in the manual will be generally considered indicative that it may be procured through ordinary business channels. There will be excluded as noncommercial, however, those functions which are a part of the normal management responsibilities of a Government agency or a private business of comparable size (such as accounting, personnel work, and the like)….”
No entry.
Bulletin 60-2 (1959) “‘Commercial-industrial activity … for its own use’ includes the provision of services or products primarily for the use of a Government agency (whether the providing agency or other agencies), but excludes, for the purpose of this Bulletin, activities producing a service or product primarily for the public or agency employees. Also excluded are functions which are a part of the normal management responsibilities of a Government agency or a private firm of a comparable size (such as accounting, personnel work, and the like). In determining whether an activity is ‘commercial-industrial’ in nature and ‘can be procured from private enterprise through ordinary business channels,’ reference may be made to the Standard Industrial Classification Manual….”
No entry.
Circular A-76 (1966) “A Government commercial or industrial activity is one which is operated and managed by an executive agency and which provides for the Government’s own use a product or service that is obtainable from a private source.”
Document (year) Definition or Description of Commercial Activity Definition or Description of Inherently Governmental
Circular A-76 (1967) “A Government commercial or industrial activity is one which is operated and managed by an executive agency and which provides for the Government’s own use a product or service that is obtainable from a private source.”
No entry.
Circular A-76 (1979) “A ‘Government commercial or industrial activity’ is one which is operated and managed by a Federal executive agency and which provides a product or service that could be obtained from a private source. A representative, but not
comprehensive, listing of such activities is provided in Attachment A [of this circular]. An activity can be identified with an organization or a type of work, but must be (1) separable from other functions so as to be suitable for performance either in-house or by contract; and (2) a regularly needed activity of an operational nature, not a one-time activity of short duration associated with support of a particular project.”
“A ‘Governmental function’ is a function which must be performed in-house due to a special relationship in executing governmental
responsibilities. Such governmental functions can fall into several categories: (1) Discretionary application of Government authority…. (2) Monetary transactions and entitlements…. (3) In-house core capabilities.”a
Circular A-76 (1983) A commercial activity is one which is operated by a Federal executive agency and which provides a product or service which could be obtained from a commercial source. A commercial activity is not a Governmental function. A
representative list of such activities is provided in Attachment A [of this circular]. A commercial activity also may be part of an organization or a type of work that is separable from other functions or activities and is suitable for performance by contract.”
“A Governmental function is a function which is so intimately related to the public interest as to mandate performance by Government employees. These functions include those activities which require either the exercise of discretion in applying Government authority or the use of value judgment in making decisions for the Government. Services or
products in support of Governmental functions, such as those listed in Attachment A [of this circular] are commercial activities and are normally subject to this Circular. Governmental functions normally fall into two categories: 1) The act of governing…. (2) Monetary transactions and entitlements….”
Document (year) Definition or Description of Commercial Activity Definition or Description of Inherently Governmental
OFPP Policy Letter 92-1 (1992) No entry. “As a matter of policy, an ‘inherently governmental function’ is a function that is so intimately related to the public interest as to mandate performance by Government employees. These functions include those activities that require either the exercise of discretion in applying Government authority or the making of value judgments in making decisions for the Government. Governmental functions normally fall into two categories: (1) the act of governing, i.e., the discretionary exercise of Government authority, and (2) monetary transactions and entitlements.”
P.L. 105-270 (1998)b No entry. “The term ‘inherently governmental
function’ means a function that is so intimately related to the public interest as to require performance by FederalGovernment employees…. The term includes activities that require either the exercise of discretion in applying Federal Government authority or the making of value judgments in making decisions for the Federal Government, including judgments relating to monetary transactions and entitlements.” Circular A-76 (1999) “A commercial activity is one which is
operated by a Federal executive agency and which provides a product or service that could be obtained from a commercial source. Activities that meet the definition of an inherently Governmental function provided below [in this circular] are not commercial activities…. A commercial activity also may be part of an organization or a type of work that is separable from other functions or activities is suitable for
performance by contract.”
“An inherently Governmental function is a function which is so intimately related to the public interest as to mandate performance by Government employees. Consistent with the definitions provided in the Federal Activities Inventory Reform Act of 1998 [P.L. 105-270] and OFPP Policy Letter 92-1, these functions include those activities which require either the exercise of discretion in applying Government authority or the use of value judgments in making decisions for the Government. Services or products in support of inherently Governmental functions, such as those listed in Attachment A [of this circular], are commercial activities and are normally subject to this Circular. Inherently Governmental functions normally fall into two categories: (1) The act of governing…. (2) Monetary transactions and entitlements….” 48 CFR § 2.101(b) (2001)c No entry. “Inherently governmental function
means, as a matter of policy, a function that is so intimately related
Document (year) Definition or Description of Commercial Activity Definition or Description of Inherently Governmental
to the public interest as to mandate performance by Government employees. This definition is a policy determination, not a legal
determination. An inherently governmental function includes activities that require either the exercise of discretion in applying Government authority, or the making of value judgments in making decisions for the Government. Governmental functions normally fall into two categories: the act of governing, i.e., the discretionary exercise of Government authority, and monetary transactions and entitlements.” Circular A-76 (2003) “A commercial activity is a recurring
service that could be performed by the private sector and is resourced, performed, and controlled by the agency through performance by government personnel, a contract, or a fee-for-service agreement. A commercial activity is not so intimately related to the public interest as to mandate performance by government personnel.
Commercial activities may be found within, or throughout, organizations that perform inherently governmental activities or classified work.”
“An inherently governmental activity is an activity that is so intimately related to the public interest as to mandate performance by government personnel. These activities require the exercise of substantial discretion in applying government authority and/or in making decisions for the
government. Inherently governmental activities normally fall into two categories: the exercise of sovereign government authority or the establishment of procedures and process related to the oversight to monetary transactions or
entitlements.”
Sources: U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 2; U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 57-7, February 5, 1957, p. 1; U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 60-2, September 21, 1959, p. 1 (underlining in original); U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government Use,” Circular No. A-76, March 3, 1966, p. 1 (underlining in original); U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government Use,” Circular No. A-76 (Revised), August 30, 1967, p. 1 (underlining in original); U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by the Government; Policy Revision,” 44 Federal Register 20558, April 5, 1979 (This is the March 29, 1979 revision of Circular A-76.) (italics in original); U.S. Office of Management and Budget, “Issuance of OMB Circular No. A-76 (Revised) ‘Performance of Commercial Activities’,” 48 Federal Register 37114, August 16, 1983 (This is the August 4, 1983 revision of Circular A-76.) (italics in original); Office of Federal Procurement Policy, “Inherently Governmental Functions,” Policy Letter 92-1, September 23, 1992, p. 2, at http://www.whitehouse.gov/omb/procurement_policy_letter_92-01/; 48 CFR § 2.101(a) (italics in original); Sec. 5(2)(A) and (B) of P.L. 105-270; U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76, August 4, 1983 (Revised 1999), pp. 2-3 (underlining in original); U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised), May 29, 2003, pp. A-2-A-3, at http://www.whitehouse.gov/sites/default/files/omb/ assets/omb/circulars/a076/a76_incl_tech_correction.pdf; 48 CFR § 2.101(b).
Notes:
a. The full description of the third category is as follows: “(3) In-house core capabilities in the area of research, development, and testing, needed for technical analysis and evaluation and technology base management and
maintenance. However, requirements for such services beyond the core capability which has been established and justified by the agency are not considered governmental functions.” (U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by the Government; Policy Revision,” 44 Federal Register 20558, April 5, 1979 (This is the March 29, 1979 revision of Circular A-76.) (Italics in original.)
b. P.L. 105-270 is the Federal Activities Inventory Reform (FAIR) Act.
c. See also Subpart 7.5, “Inherently Governmental Functions,” of Title 48 of the Code of Federal Regulations for, among other things, “a list of examples of functions considered to be inherently governmental functions or which shall be treated as such.” (48 CFR § 7.503(c).)
The Role of the Private Sector
Governmental reliance on businesses for the provision of goods and services has a long history in the United States and pre-dates the ratification of the Constitution and the establishment of the nation. The colonies relied on merchants, farmers, and craftsmen for supplying their troops during the French and Indian War and the Revolutionary War.27
The federal government’s written policy of relying on the private sector for the provision of goods and services has its origins in three Bureau of the Budget bulletins issued in the 1950s. OMB Circular A-76, first published in 1966 and revised several times over the years, continues this policy.28 Most of these documents also identify, or describe, circumstances under which
federal employee performance of commercial functions was, or is, permitted. Table 2 contains excerpts from the three bulletins, the original Circular A-76, and all of the revised versions of Circular A-76.
Table 2. Policy History of Governmental Reliance on the Private Sector
Bureau of the Budget Bulletins and OMB Circular A-76
Document
(date) Policy Statementa
Circumstances Under Which Government Performance of a Commercial Function May Be Permittedb
Bureau of the Budget Bulletin No. 55-4
(January 15, 1955)
The “Federal Government will not start or carry on any commercial activity to provide a service or product for its own use if such product or service can be procured from private enterprise through
An agency head may authorize an exception to this policy “only where it is clearly demonstrated in each case that it is not in the public interest to procure such product or service from private enterprise.”c
27 James F. Nagle, History of Government Contracting (Washington, DC: George Washington University, 1999), pp.
12 and 16.
28 An excerpt from a 1962 report to President John F. Kennedy presents another perspective on the relationship
between the federal government and contractors. The Bell Report, which was named for the Director of the Bureau of the Budget, David Bell, “(1) declared that reliance on contractors and grantees ‘blurred the traditional dividing line between the private and public sectors of our Nation’; (2) deemed it ‘axiomatic’ that government officials (i.e., civil and special services and appointees) must do the work and maintain the competence required to account for all government work; and (3) warned that, without corrective action, a brain drain into the contractor workforce would result.” (Report to the President on Government Contracting for Research and Development (Bell Report), in Systems Development and Management: Hearings Before a Subcommittee of the Committee on Government Operations, House of Representatives, 87th Congress, 191-263 app. I (1962), cited in Dan Guttman, “Governance by Contract:
Constitutional Visions; Time for Reflection and Choice,” Public Contract Law Journal, vol. 33, no. 2 (Winter 2004), p. 327.
Document
(date) Policy Statementa
Circumstances Under Which Government Performance of a Commercial Function May Be Permittedb
ordinary business channels.” Bureau of the Budget Bulletin No.
57-7
(February 5, 1957)
Same as BOB No. 55-4. Same as BOB No. 55-4.
Bureau of the Budget Bulletin No. 60-2
(September 21, 1959)
Same as BOB No. 55-4. “Because the private enterprise system is basic to the American economy, the general policy establishes a presumption in favor of Government procurement from commercial sources.”d
“Compelling reasons for exceptions to the general policy include national security; relatively large and disproportionately higher costs; and clear unfeasibility.”e
Bureau of the Budget Circular A-76
(March 3, 1966)
“The guidelines in this Circular are in furtherance of the Government’s general policy of relying on the private enterprise system to supply its needs.”
“A Government commercial or industrial activity may be authorized only under one or more of the following conditions: a. Procurement of a product or service from a commercial source would disrupt or materially delay an agency’s
program…. b. It is necessary for the Government to conduct a commercial or industrial activity for purposes of combat support or for individual and unit retraining of military personnel or to maintain or strengthen mobilization readiness. c. A satisfactory
commercial source is not available and cannot be developed in time to provide a product or service when it is needed…. d. The product or service is available from another Federal agency…. e. Procurement of the product or services from a commercial source will result in higher cost to the Government….” “In some instances, … it is in the national interest for the Government to provide directly the products and services it uses.”
Bureau of the Budget Circular A-76
(August 30, 1967)
Same as the March 3, 1966, circular. Same as the March 3, 1966, circular.
Office of Management and Budget
Circular A-76 (March 29, 1979) “In a democratic free enterprise economic system, the Government should not compete with its citizens. The private enterprise system, characterized by individual freedom and initiative, is the primary source of national economic strength. In recognition of this principle, it has been and continues to be the general policy of the Government to rely on competitive private enterprise to
“No Satisfactory Commercial Source Available…. National Defense…. Higher Cost.”f
Document
(date) Policy Statementa
Circumstances Under Which Government Performance of a Commercial Function May Be Permittedb
supply the products and services it needs.”
“This policy builds on three equally valid policy precepts: a. Rely on the Private Sector. The Government’s business is not to be in business. Where private sources are available, they should be looked to first to provide the commercial or industrial goods and services needed by the Government to act on the public’s behalf.b. Retain Certain Governmental Functions In-House. Certain functions are inherently governmental in nature, being so intimately related to the public interest as to mandate performance by Federal employees.c.
Aim for Economy; Cost Comparisons.
When private performance is feasible and no overriding factors require in-house performance, the American people deserve and expect the most economical performance and, therefore, rigorous comparison of contract costs versus in-house costs should be used, when appropriate, to decide how the work will be done.”f
Office of Management and Budget
Circular A-76 (August 4, 1983) “In the process of governing, the Government should not compete with its citizens. The competitive
enterprise system, characterized by individual freedom and initiative, is the primary source of national economic strength. In recognition of this principle, it has been and continues to be the general policy of the
Government to rely on commercial sources to supply the products and services the Government needs.” “It is the policy of the United States Government to: a. Achieve Economy and Enhance Productivity.
Competition enhances quality, economy, and productivity. Whenever commercial sector performance of a Government operated commercial activity is permissible, in accordance with this Circular and its Supplement, comparison of the cost of contracting and the cost of in-house performance shall be performed to determine who will do the work. b. Retain
Governmental Functions In-House. Certain functions are inherently
“a. No Satisfactory Commercial Source Available…. b. National Defense…. c. Patient Care…. d. Lower cost.”g
Document
(date) Policy Statementa
Circumstances Under Which Government Performance of a Commercial Function May Be Permittedb
Governmental in nature, being so intimately related to the public interest as to mandate performance only by Federal employees. These functions are not in competition with the commercial sector. Therefore, these functions shall be performed by Government employees. c. Rely on the Commercial Sector. The Federal Government shall rely on
commercially available sources to provide commercial products and services. In accordance with the provisions of this Circular, the Government shall not start or carry on any activity to provide a
commercial product or service if the product or service can be procured more economically from a commercial source.”f
Office of Management and Budget Circular A-76 (August 4, 1983 (revised 1999))h
Same as August 4, 1983 circular.i Same as August 4, 1983 circular.
Commercial Activities Panel,j
Improving the Sourcing Decision of the Government, Final Report (April 2002)
Not applicable. “It is clear that government workers need to perform certain warfighting, judicial, enforcement, regulatory, and policymaking functions, and the government may need to retain an in-house capability even in functions that are largely outsourced. Certain other capabilities, such as adequate acquisition skills to manage costs, quality, and performance and to be smart buyers of products and services, or other competencies such as those directly linked to national security, also must be retained in-house to help ensure effective mission execution.”
Office of Management and Budget
Circular A-76 (May 29, 2003) “The longstanding policy of the federal government has been to rely on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, commercial activities should be subject to the forces of competition.”
Although this revision does not identify any circumstances or conditions under which federal employee performance of a commercial function might be permitted, it provides a means for agencies to exempt commercial functions from being subjected to public-private competition.k Sources: U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 1; U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 57-7, February 5, 1957, p. 1; U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 60-2, September 21, 1959, pp.
1-3; U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government Use,” Circular No. A-76, March 3, 1966, pp. 1-3; U.S. Bureau of the Budget, “Policies for Acquiring Commercial or Industrial Products and Services for Government Use,” Circular No. A-76 (Revised), August 30, 1967, pp. 1-3; U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by the Government; Policy Revision,” 44 Federal Register 20557-20559, April 5, 1979 (This is the March 29, 1979 revision of Circular A-76.); U.S. Office of Management and Budget, “Issuance of OMB Circular No. A-76 (Revised) ‘Performance of Commercial Activities’,” 48 Federal Register 37114-37115, August 16, 1983 (This is the August 4, 1983 revision of Circular A-76.); U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76, August 4, 1983 (Revised 1999), p. 1; U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised), May 29, 2003, at
http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a076/a76_incl_tech_correction.pdf; Commercial Activities Panel, Improving the Sourcing Decisions of the Government, Final Report, April 2002, p. 46, at http://archive.gao.gov/f0502/a03209.pdf.
Notes:
a. If the document includes, in addition to the policy statement, relevant explanatory material, the additional material is included here.
b. These are the circumstances identified explicitly in the document. Under the 1966 circular and each revision, federal employees may perform a commercial function if the outcome of the public-private competition indicates that the work should be performed by federal employees.
c. When reviewing commercial activities, several rules, including the following, applied: “In determining whether an activity is ‘commercial’ in nature and ‘could be procured … through ordinary business channels,’ reference may be made to ordinary business practice with respect to procurement of services or products. The inclusion of an activity in the manual will be generally considered indicative that it may be procured commercially. There will be excluded from coverage as noncommercial, however, those functions which are a part of the normal management responsibilities of a Government agency or a private business of
comparable size (such as accounting, personnel work, and the like).” (U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 55-4, January 15, 1955, p. 2.)
d. Although this statement does not appear in the paragraph labeled “Policy,” it reveals the fundamental reason for the presumption in favor of using the private sector to supply the government.
e. (1) “There are instances … when for reasons of national security, an activity cannot be turned over to private industry. These activities may include, but are not necessarily limited to, functions which must be performed by Government personnel in order to provide them with vital training and experience for maintaining combat units in readiness….” (2) “Continuation of Government operation on the ground that procurement through commercial sources would involve higher costs may be justified only if the costs are analyzed on a comparable basis and the differences are found to be substantial and disproportionately large….” (3) “Certain products or services may be found to be clearly unfeasible to procure from private enterprise through ordinary business channels due to the fact that the product or service is: (1) An integral function of the basic mission of the agency, or (2) Not available in the particular instance, nor likely to become available commercially in the foreseeable future because of the Government’s unique or highly specialized requirements or geographic isolation of the installation, or (3) Administratively impractical to contract for commercially.” (U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use,” Bulletin No. 60-2, September 21, 1959, pp. 2-4.)
f. Italics in original.
g. Although the 1979 circular uses the term “higher cost” and the 1983 circular uses the term “lower cost,” the meaning, as follows, is the same in both circulars: government performance of a commercial function is authorized if the cost of agency performance is lower than the cost of contractor performance.
h. OMB has noted that it was the supplement to Circular A-76—not the circular itself—that was revised in 1999. (U.S. Office of Management and Budget, “Performance of Commercial Activities,” 67 Federal Register
69771, November 19, 2002.)
i. There are two differences between the policy statements of the 1983 revision and the 1999 revision. Under the heading Achieve Economy and Enhance Productivity, the 1999 revision includes an additional sentence, which reads as follows: “When conducting cost comparisons, agencies must ensure that all costs are considered and that these costs are realistic and fair.” Under the heading Rely on the Commercial Sector,
the 1999 revision includes the following reference to the supplement to Circular A-76: “In accordance with the provisions of this Circular and its Supplement, the Government….” (U.S. Office of Management and Budget, Circular No. A-76, August 4, 1983 (Revised 1999), pp. 1-2.) (Underlining included in original.) j. See “Commercial Activities Panel’s Sourcing Principles” for additional information about the panel. k. Pursuant to the Federal Activities Inventory Reform (FAIR) Act (P.L. 105-270), each agency subject to the
statute is required to submit an inventory of its commercial functions to OMB annually. For each function listed, an agency applies the appropriate reason code, which indicates whether the function is eligible or is not eligible for a Circular A-76 competition. Reason code A is used to identify a commercial function that “is not appropriate for private sector performance pursuant to a written determination by the [agency’s] CSO [competitive sourcing official].” Agencies are required to make the written justifications available to OMB and the public if requested to do so. (U.S. Office of Management and Budget, Circular No. A-76 (Revised), May 29, 2003, p. A-3, at http://www.whitehouse.gov/sites/default/files/omb/assets/about_omb/ a76_incl_tech_correction.pdf.)
Although either government employees or contractor employees may perform commercial functions, government reliance on the private sector has been the foundation of written sourcing policy, as shown by the material presented in Table 2. Some observers would suggest that contractor performance has been considered the rule while federal employee performance of commercial activities has been treated as an exception. The presumption of, or preference for, contractor performance, they would add, is supported by the following language, which is contained in the policy statement in Circular A-76:
A [public-private] competition is not required for private sector performance of a new requirement…. Before government personnel may perform a new requirement, a [public-private] competition shall be used to determine whether government personnel should perform the commercial activity.29
In sum, if an agency has a new function (i.e., a new requirement) to perform, it may procure the services of a contractor, in accordance with applicable statutes and the Federal Acquisition Regulation (FAR). If, instead, the agency considers using its employees to perform the work, then it must conduct a public-private competition, which will determine whether federal employees or contractor employees will perform the work.
Several of the documents listed in Table 2 provide a similar rationale—the importance of the nation’s private enterprise system—for government reliance on the private sector. BOB Bulletin 60-2 states that, “[b]ecause the private enterprise system is basic to the American economy, the general policy establishes a presumption in favor of Government procurement from commercial sources.”30 Circular A-76 (1979 revision) echoed the theme found in Bulletin 60-2, stating that
the private sector “is the primary source of national economic strength.”31 The same reference to
29 U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised), May
29, 2003, p. 2. (Italics added to aid in identifying relevant language.) A new requirement is an “agency’s newly established need for a commercial product or service that is not performed by (1) the agency with government personnel; (2) a fee-for-service agreement with a public reimbursable source; or (3) a contract with the private sector. An activity that is performed by the agency and is reengineered, reorganized, modernized, upgraded, expanded, or changed to become more efficient, but still essentially provides the same service, is not considered a newrequirement. New ways of performing existing work are not new requirements.” (Ibid., pp. D-6-D-7.)
30 U.S. Bureau of the Budget, “Commercial-Industrial Activities of the Government Providing Products or Services for
Governmental Use,” Bulletin No. 60-2, September 21, 1959, p. 1.
31 U.S. Office of Management and Budget, “Acquiring of Commercial or Industrial Products and Services Needed by
the Government; Policy Revision,” 44 Federal Register 20557-20558, April 5, 1979 (This is the March 29, 1979, revision of Circular A-76.)
the importance of the private sector also appeared in the 1983 and 199932 revisions of Circular
A-76.
The 2003 revision to Circular A-76 does not include a rationale for relying on the private sector, but it does acknowledge that reliance on the private sector for commercial services has been the longstanding policy of the federal government. At the time this revision was published, OMB offered the following explanation regarding the absence of a statement about governmental reliance on the private sector:
Deletion of the “reliance” statement from the revised Circular is not intended to denigrate this contribution.33 Nor does this action signal a retreat from the Administration’s commitment to a market-based government that is unafraid of competition, innovation, and choice. The deletion is simply meant to avoid a presumption that the government should not compete for work to meet its own needs. Such a suggestion conflicts with the Circular’s main function of providing policies and procedures to determine the best service provider— irrespective of the sector the provider represents.34
The justification for competitive sourcing found in the 2003 revision is based partly on market ideology and partly on financial considerations. It states, “To ensure that the American people receive maximum value for their tax dollars, [agencies’] commercial activities should be subject to the forces of competition.”35
Despite this difference from statements in previous versions of Circular A-76, the presumption in favor of private sector performance of commercial activities and a belief in the importance of the private sector as a rationale for competitive sourcing remain, at least for some. Two similar bills introduced during the 112th Congress, H.R. 1474 and S. 785, appear to reflect this perspective.
H.R. 1474, Freedom from Government Competition Act of 2011, states, in part, the following:
In the process of governing, the Federal Government should not compete with its citizens. The competitive enterprise system, characterized by individual freedom and initiative, is the primary source of national economic strength. In recognition of this principle, it has been and continues to be the general policy of the Federal Government—(1) to rely on commercial sources to supply the products and services the Government needs; (2) to refrain from providing a product or service if the product or service can be procured more economically from a commercial sources; and (3) to utilize Federal employees to perform inherently governmental functions….36
The material in Table 2 also shows that, with the exception of the 2003 circular, sourcing policy documents acknowledged the need for, and permitted, exceptions to the policy of governmental reliance on the private sector for the provision of commercial goods and services. Among the reasons cited for permitting exceptions are national security, public interest, cost, disruption to an
32 The 1999 version may not be referred to as such. The title page of the 1999 version includes the following: “(August
4, 1983 (revised 1999)).”
33 The words “this contribution” refers to the following statement by OMB: “Without the private sector, the
government would not be able to meet the many needs of our citizenry.” (U.S. Office of Management and Budget, “Performance of Commercial Activities,” 68 Federal Register 32136, May 29, 2003.)
34 Ibid.
35 U.S. Office of Management and Budget, “Performance of Commercial Activities,” Circular No. A-76 (Revised),
May 29, 2003, p. 1.
agency’s program. Particular functions singled out for federal employee performance were combat support, patient care, and national defense. For its part, the Commercial Activities Panel (CAP) noted that federal employees need to perform “certain warfighting, judicial, enforcement, regulatory, … policymaking …” and acquisition functions.37 Thus, while governmental reliance on the private sector has been embedded in written sourcing policy since the 1950s, so, too, has the acknowledgment (and associated exemptions) that, under certain circumstances, federal employee performance of commercial activities may be preferable to contractor performance.
Recent Developments in the History of Sourcing
Policy
Competitive Sourcing
The historically predominant strain of sourcing policy—which focuses on governmental reliance on the private sector, Circular A-76, and public-private competitions38—was designated one of
the components of President George W. Bush’s President’s Management Agenda (PMA), and, as such, was named competitive sourcing.39 The Administration viewed competitive sourcing as “the
process of opening the government’s commercial activities to the discipline of competition”40 and
envisioned that “[o]pening Government functions to competition to the fullest extent possible is the best way to ensure market-based pricing and encourage innovation….”41 The Administration’s
plans for competitive sourcing included “[e]xpanding [the number of] A-76 competitions.”42 To
that end, in early 2001, the Office of Management and Budget directed agencies to conduct public-private competitions, or direct conversions,43 for at least 5% of the full-time equivalents44
37 Commercial Activities Panel, Improving the Sourcing Decisions of the Government, Final Report, April 2002, p. 46,
at http://archive.gao.gov/f0502/a03209.pdf. For more information about the panel, see “Commercial Activities Panel’s Sourcing Principles.”
38 Generally, public-private competitions have involved subjecting an agency’s commercial activity to a competition,
the outcome of which will determine whether agency employees continue to perform the work, or a contractor will take over the function (for the duration of the contract awarded by the agency).
39 An example of the focus on competing agencies’ functions (commercial activities) may be found in a statutory
provision that authorized the establishment of the Commercial Activities Panel (CAP). Convened by the Comptroller General pursuant to Section 832 of P.L. 106-398, Floyd D. Spence National Defense Authorization Act of FY2001, the Commercial Activities Panel was directed “to study the policies and procedures governing the transfer of commercial activities for the Federal Government from Government personnel to a Federal contractor….” (Sec. 832(a) of P.L. 106-398.)
40 U.S. Office of Management and Budget, “Performance of Commercial Activities,” 67 Federal Register 69772,
November 19, 2002, at http://www.gpo.gov/fdsys/pkg/FR-2002-11-19/pdf/02-29472.pdf. OMB’s reports on
competitive sourcing touted the net savings, cost avoidance, and performance improvements that resulted from public-private competitions. For example, see U.S. Office of Management and Budget, Report on Competitive Sourcing Results, Fiscal Year 2006, May 2007, at http://www.whitehouse.gov/sites/default/files/omb/assets/procurement/ cs_report_fy2006.pdf.)
41 Executive Office of the President, A Blueprint for New Beginnings, A Responsible Budget for America’s Priorities
(Washington: GPO, 2001), p. 181, at http://www.gpoaccess.gov/usbudget/fy02/pdf/blueprnt.pdf.
42 Mitchell E. Daniels, Jr., Director, U.S. Office of Management and Budget, “Performance Goals and Management
Initiatives for the FY2002 Budget,” memorandum M-01-11, February 14, 2001, p. 1 (attachment), at http://www.whitehouse.gov/omb/memoranda_m01-11/.
43 Some Circular A-76 revisions issued prior to 2003 permitted an agency to convert a commercial activity with 10 or
fewer full-time equivalents to contract, in-house, or interservice support agreement performance without conducting a (continued...)
[FTEs] listed on their commercial activities inventories in FY2002.45 At the same time, OMB
noted that the President was committed to subjecting “at least one-half of the Federal positions [FTEs] listed” on FAIR Act inventories to public-private competitions.46 A little over two years
later, the Administration dropped its government-wide competitive sourcing goals in favor of agency-specific targets, according to the head of the Office of Federal Procurement Policy.47
The PMA included a scorecard for tracking each agency’s progress on the PMA initiatives. In December 2003, for example, OMB described the criteria an agency was required to fulfill in order to receive a “green” rating for competitive sourcing.
“An agency will earn a ‘green’ status when it has:
• an OMB approved ‘green’ competition plan to compete commercial activities
available for competition
• publicly announced standard competitions in accordance with the schedule outlined in the agency ‘green’ competition plan
• since Janu
